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g.r. No. 143076 - Philreca vs. Dilg

g.r. No. 143076 - Philreca vs. Dilg

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Published by: sean on Dec 31, 2009
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.:This is a petition for Prohibition under Rule 65 of the Rules of Court with prayer for the issuance of a temporaryrestraining order seeking to annul as unconstitutional sections 193 and 234 of R.A. No. 7160 otherwise knownas the Local Government Code.On May 23, 2000, a class suit was filed by petitioners in their own behalf and in behalf of other electriccooperatives organized and existing under P.D. No. 269 who are members of petitioner Philippine RuralElectric Cooperatives Association, Inc. (PHILRECA). Petitioner PHILRECA is an association of 119 electriccooperatives throughout the country. Petitioners Agusan del Norte Electric Cooperative, Inc. (ANECO), Iloilo IElectric Cooperative, Inc. (ILECO I) and Isabela I Electric Cooperative, Inc. (ISELCO I) are non-stock, non- profit electric cooperatives organized and existing under P.D. No. 269, as amended, and registered with the National Electrification Administration (NEA).Under P.D. No. 269, as amended, or the National Electrification Administration Decree, it is the declared policyof the State to provide “the total electrification of the Philippines on an area coverage basis” the same “beingvital to the people and the sound development of the nation.” Pursuant to this policy, P.D. No. 269 aims to“promote, encourage and assist all public service entities engaged in supplying electric service, particularlyelectric cooperatives” by “giving every tenable support and assistance” to the electric cooperatives comingwithin the purview of the law. Accordingly, Section 39 of P.D. No. 269 provides for the following taxincentives to electric cooperatives:SECTION 39.
 Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance fromthe National Power Corporation
. — Pursuant to the national policy declared in Section 2, the Congress herebyfinds and declares that the following assistance to cooperative is necessary and appropriate:(a) Provided that it operates in conformity with the purposes and provisions of this Decree,
cooperatives(1) shall be permanently exempt from paying income taxes
, and (2) for a period ending on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion hereunder, or until itshall become completely free of indebtedness incurred by borrowing, whichever event first occurs,
shall beexempt from the payment (a) of all National Government, local government and municipal taxes andfees, including franchise, filing, recordation, license or permit fees or taxes and any fees, charges, or costsinvolved in any court or administrative proceeding in which it may be a party
and (b) of all duties orimposts on foreign goods acquired for its operations
, the period of such exemption for a new cooperativeformed by consolidation, as provided for in Section 29, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under thisDecree: Provided, That the Board of Administrators shall, after consultation with the Bureau of InternalRevenue, promulgate rules and regulations for the proper implementation of the tax exemptions provided for inthis Decree.
….From 1971 to 1978, in order to finance the electrification projects envisioned by P.D. No. 269, as amended, thePhilippine Government, acting through the National Economic Council (now National Economic DevelopmentAuthority) and the NEA, entered into six (6) loan agreements with the government of the United States of America through the United States Agency for International Development (USAID) with electric cooperatives,including petitioners ANECO, ILECO I and ISELCO I, as beneficiaries. The six (6) loan agreements involved atotal amount of approximately US$86,000,000.00. These loan agreements are existing until today.The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Thus, Section 6.5 of A.I.D. Loan No. 492-H-027 dated November 15, 1971 provides:Section 6.5. Taxes and Duties. The Borrower covenants and agrees that this Loan Agreement and the Loan provided for herein shall be free from, and the Principal and interest shall be paid to A.I.D. without deductionfor and free from, any taxation or fees imposed under any laws or decrees in effect within the Republic of thePhilippines or any such taxes or fees so imposed or payable shall be reimbursed by the Borrower with fundsother than those provided under the Loan. To the extent that (a) any contractor, including any consulting firm,any personnel of such contractor financed hereunder, and any property or transactions relating to such contractsand (b) any commodity procurement transactions financed hereunder, are not exempt from identifiable taxes,tariffs, duties and other levies imposed under laws in effect in the country of the Borrower, the Borrower and/or Beneficiary shall pay or reimburse the same with funds other than those provided under the Loan.Petitioners contend that pursuant to the provisions of P.D. No. 269, as amended, and the above-mentioned provision in the loan agreements, they are exempt from payment of local taxes, including payment of real property tax. With the passage of the Local Government Code, however, they allege that their tax exemptionshave been invalidly withdrawn. In particular, petitioners assail Sections 193 and 234 of the Local GovernmentCode on the ground that the said provisions discriminate against them, in violation of the equal protectionclause. Further, they submit that the said provisions are unconstitutional because they impair the obligation of contracts between the Philippine Government and the United States Government.On July 25, 2000 we issued a Temporary Restraining Order.We note that the instant action was filed directly to this Court, in disregard of the rule on hierarchy of courts.However, we opt to take primary jurisdiction over the present petition and decide the same on its merits in viewof the significant constitutional issues raised by the parties dealing with the tax treatment of cooperatives under existing laws and in the interest of speedy justice and prompt disposition of the matter.I
There is No Violation of the Equal Protection Clause
The pertinent parts of Sections 193 and 234 of the Local Government Code provide:Section 193.
Withdrawal of Tax Exemption Privileges.
 —Unless otherwise provided in this Code, taxexemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, includinggovernment-owned and controlled corporations, except local water districts,
cooperatives duly registeredunder R.A. No. 6938
, non-stock and non-profit hospitals and educational institutions, are hereby withdrawnupon the effectivity of this Code.….
Section 234.
 Exemptions from real property tax.
 —The following are exempted from payment of the real property tax:….
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
….Except as provided herein, any exemption from payment of real property tax previously granted to, or presentlyenjoyed by, all persons whether natural or juridical, including all government-owned and controlledcorporations are hereby withdrawn upon effectivity of this Code.Petitioners argue that the above provisions of the Local Government Code are unconstitutional for violating theequal protection clause. Allegedly, said provisions unduly discriminate against petitioners who are dulyregistered cooperatives under P.D. No. 269, as amended, and not under R.A. No. 6938 or the Cooperative Codeof the Philippines. They stress that cooperatives registered under R.A. No. 6938 are singled out for taxexemption privileges under the Local Government Code. They maintain that electric cooperatives registeredwith the NEA under P.D. No. 269, as amended, and electric cooperatives registered with the CooperativeDevelopment Authority (CDA) under R.A. No. 6938 are similarly situated for the following reasons: a) petitioners are registered with the NEA which is a government agency like the CDA; b) petitioners, like CDA-registered cooperatives, operate for service to their member-consumers; and c) prior to the enactment of theLocal Government Code, petitioners, like CDA-registered cooperatives, were already tax-exempt. Thus, petitioners contend that to grant tax exemptions from local government taxes, including real property tax under Sections 193 and 234 of the Local Government Code only to registered cooperatives under R.A. No. 6938 is aviolation of the equal protection clause.We are not persuaded. The equal protection clause under the Constitution means that “no person or class of  persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes inthe same place and in like circumstances.”
Thus, the guaranty of the equal protection of the laws is not violated by a law based on reasonable classification. Classification, to be reasonable, must (1) rest on substantialdistinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4)apply equally to all members of the same class.We hold that there is reasonable classification under the Local Government Code to justify the different taxtreatment between electric cooperatives covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938.
, substantial distinctions exist between cooperatives under P.D. No. 269, as amended, and cooperativesunder R.A. No. 6938. These distinctions are manifest in at least two material respects which go into the natureof cooperatives envisioned by R.A. No. 6938 and which characteristics are not present in the type of cooperative associations created under P.D. No. 269, as amended.a. Capital Contributions by MembersA cooperative under R.A. No. 6938 is defined as:[A] duly registered association of persons with a common bond of interest, who have voluntarily joined together to achieve a lawful common or social economic end,
making equitable contributionsto the capital required
and accepting a fair share of the risks and benefits of the undertaking inaccordance with universally accepted cooperative principles.

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